Tracker Mortgages

TRACKER MORTGAGES

Tracker mortgages move directly in line with another interest rate – normally the Bank of England’s base rate plus a few percent.

So if the base rate goes up by 0.5%, your rate will go up by the same amount.

Usually they have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal.

Advantages

• If the rate it is tracking falls, so will your mortgage payments

Disadvantages

• If the rate it is tracking increases, so will your mortgage payments
• You might have to pay an early repayment charge if you want to switch before the deal ends

Their rates are variable and go up or down every time an economic index like the Bank of England base rate does. Your interest rate will change by the same amount.

For example: You take out a mortgage that tracks at 2% above the Bank of England base rate. The base rate is 0.5% at the start, so you pay 2.5% interest. When the base rate goes up by 0.75% to 1.25%, your mortgage rate would change to 3.25%.

Their interest rates usually last a set number of years. After this period ends you will be moved to the lender's SVR, which is often higher. However, some lifetime tracker deals offer tracker interest rates for the entire term of your mortgage.

Watch out for

• The small print – check your lender can’t increase rates even when the rate your mortgage is linked to hasn’t moved. It’s rare, but it has happened in the past